Royal Mail: Transport Policy (Hansard, 11 June 2003)

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)
My Lords, Royal Mail planned under its transport review to continue to use rail as part of its integrated transport network. However, two years of negotiation with English, Welsh and Scottish Railway have stalled on cost grounds. Royal Mail's board has decided therefore to drop plans to include rail in its new network. The Government regret that loss of business for rail freight but stand by their policy of allowing Royal Mail freedom to operate commercially.

§ Lord Bradshaw
My Lords, I thank the noble Lord for that reply. I seek an assurance from him that the Government will examine the basis of the costing that the railway and Post Office have adopted. Is a full cost associated with the rail mode and has the road mode been assessed on a marginal cost basis, which, among 193 other things, does not take into account the fact that the heaviest lorries do not pay a proper contribution to the maintenance of the highway?

§ Lord Sainsbury of Turville
My Lords, that commercial decision will be taken by Royal Mail; that is its decision. The costing basis that it uses is for it to decide. I should have thought that in both cases marginal costing was very important for those decisions.

Lord Berkeley
My Lords, I declare an interest as chairman of the Rail Freight Group. First, my noble friend said in his Answer to the noble Lord, Lord Bradshaw, that Royal Mail's decision to use road instead of rail was taken on cost grounds. Is he aware that there are three other rail freight operators who could quote for that work, and does he know whether they have been asked to do so? When I discussed this with Royal Mail some time ago, the answer was that it had not.
My second point relates to Royal Mail's facilities at terminals and in trains, which are probably used for only eight hours a day. Royal Mail could surely save an enormous amount of money if it allowed third-party operators, such as DHL, Securicor and others, who are very keen to use rail freight, to use those expensive facilities as well.

§ Lord Sainsbury of Turville
My Lords, again, whether Royal Mail approaches other operators is entirely a commercial decision for it. If the other operators were any good, however, I should expect that they would have seized the opportunity to approach Royal Mail and make it an offer.

§ The Lord Bishop of Hereford
My Lords, does the Minister agree that it will be very environmentally damaging to make the proposed change of mode? The Post Office spokesman, when challenged about the environmental implications of its policy, was wholly unconvincing. It is totally unacceptable, and quite contrary to the Government's policy of encouraging transfer from road to rail, to allow that to go ahead. The Minister's answer that it is simply a matter of commercial judgment must be challenged by a Government who are serious about the environment.

§ Lord Sainsbury of Turville
My Lords, the right position is to leave that as a commercial decision. However, the road transport review, which has taken place, will result in environmental improvements; they will be very substantial indeed. They will not be as large as they could have been if that transport had been kept on rail, Nevertheless, because of efficiency, there will be very big environmental improvements.

§ Lord Clarke of Hampstead
My Lords—

§ Lord Forsyth of Drumlean
My Lords—

Noble Lords
This side!

§ Lord Forsyth of Drumlean
My Lords, does not the approach of Royal Mail involve the kind of gesture towards the declared policy of the Deputy Prime Minister—of moving traffic from road to rail—with which he himself has been identified in recent days? How can any government which made promises some six years ago to reduce the growth of road traffic stand at the Dispatch Box and say, "We are leaving it all to the market"?

§ Lord Sainsbury of Turville
My Lords, it has never been part of the Government's policy to require that commercial activities should take place on one kind of transport or another. The aim is to make it attractive for people to do so through grants and other means. However, the policy is not to direct companies to do something but to leave it to them to make their decision on the best possible information.

§ Lord Ezra
My Lords, is the situation not complicated by the fact that Royal Mail is VAT exempt and therefore cannot reclaim VAT on transport by rail? However, by using its own road transport, it does not incur VAT. That obviously gives an advantage of at least 17.5 per cent in favour of road transport.

§ Lord Sainsbury of Turville
My Lords, I am not able to say what the exact position is because that affects the position with regard to the particular commercial decision. Again, one must say that it is for the parties involved to make their decision on the best basis. Changing the derogation, which I believe applies in this respect to the Post Office, or changing the VAT arrangement for rail transport are rather big decisions to take simply in relation to this issue.

§ Lord Clarke of Hampstead
My Lords, does my noble friend recall the time when he steered the Postal Services Act 2000 through this House? Was there any reference to the need for the Post Office to have regard to the environment? I cannot recall the Post Office ever being given that latitude. Could he also say whether the accounting that led to this situation of road versus rail is the same accounting that Postcomm applied when applying its charges for downstream access into the Royal Mail service, which, on recent figures, shows that the Post Office will be subsidising its competitors?

§ Lord Sainsbury of Turville
My Lords, the two accounting systems are rather different in terms of what they are trying to achieve. In this particular context, again it is for the Post Office to decide what is the best kind of costing basis to use. The House should bear in mind that in the past it has been constant government intervention in decisions taken on a commercial basis by the Post Office which has done it so much harm. Now we have given it the responsibility to make these decisions on a commercial basis, we should stand behind it and let it get on with the job.